nep-ene New Economics Papers
on Energy Economics
Issue of 2011‒05‒07
27 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. International Interlinkages of Biofuel Prices: The Role of Biofuel Policies By Rajcaniova, Miroslava; Drabik, Dusan; Ciaian, Pavel
  2. How Policy Affects Incentives and Contract Duration in Biomass Production By Wang, Chenguang
  3. The Trade-off Between Bioenergy and Emissions When Land Is Scarce By Kauffman, Nathan; Hayes, Dermot
  4. Inside the Black Box: Price Linkage and Transmission Between Energy and Agricultural Markets By Du, Xiaodong; McPhail, Lihong
  5. The Impact of Ethanol Production on US and Regional Gasoline Markets: An Update to May 2009 By Xiaodong Du; Dermot J. Hayes
  6. The Implications of Alternative Biofuel Policies on Carbon Leakage By Drabik, Dusan; de Gorter, Harry; Just, David R.
  7. Land Use and Greenhouse Gas Implications of Biofuels: Role of Technology and Policy By Chen, Xiaoguang; Huang, Haixiao; Khanna, Madhu
  8. Stoffstromanalyse des deutschen Biokraftstoffsektors für das Jahr 2007 By Strohm, Kathrin
  9. Economics of Sourcing Cellulosic Feedstock for Energy Production By Gustafson, Cole; Maung, Thein; Saxowsky, David; Nowatzki, John; Miljkovic, Tatjana
  10. Property Rights, Institutions and Fuel Wood Demand, by Source, in Rural Ethiopia By Abebe Damte; Steven F. Koch
  12. Ex oleo bellare? The Impact of Oil on the Outbreak of Militarized Interstate Disputes By Georg Strüver; Tim Wegenast
  13. Risk Spillovers in Oil-Related CDS, Stock and Credit Markets By Hammoudeh, S.M.; Liu, T.; Chang, C-L.; McAleer, M.J.
  14. Fossil Fuel Prices and the Economic and Budgetary Challenges of a Small Energy-Importing Economy: The Case of Portugal By Alfredo Marvão Pereira; Rui M. Pereira
  15. Power Spot Price Models with negative Prices By Schneider, Stefan; Schneider, Stefan
  16. The Cost of Fuel Economy in the Indian Passenger Vehicle Market By Randy Chugh; Maureen L. Cropper; Urvashi Narain
  17. China's Rising Demand for "Green Cities": Evidence from Cross-City Real Estate Price Hedonics By Siqi Zheng; Jing Cao; Matthew E. Kahn
  18. Dynamic Interaction between Economic Indicators and SO2 Emission in U.S. By Kim, Man-Keun; Yu, Tun-Hsiang
  19. The supply side of CO2 with country heterogeneity By Hoel, Michael
  20. Carbon Price Drivers: Phase I Versus Phase II Equilibrium? By Anna Creti; Pierre-Andre Jouvet; Valerie Mignon
  21. Negative Leakage By Don Fullerton; Daniel Karney; Kathy Baylis
  22. Climate Policy, Carbon Leakage and Competitiveness: How Might Border Tax Adjustments Help? By Sheldon, Ian; McCorriston, Steve
  23. Synergy effects of international policy instruments to reduce deforestation: a cross-country panel data analysis By Solenn Leplay; Sophie Thoyer
  24. A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application By Francisco Rosas; Bruce A. Babcock; Dermot J. Hayes
  25. Climate Change Policy and the Adoption of Methane Digesters on Livestock Operations By Key, Nigel; Sneeringer, Stacy E.
  26. Disaster Risk, Social Vulnerability and Economic Development By Ward, Patrick S.; Shively, Gerald E.
  27. Bargaining over a climate deal: is it worse to wait and see? By Pierre Courtois; Tarik Tazdaït

  1. By: Rajcaniova, Miroslava; Drabik, Dusan; Ciaian, Pavel
    Abstract: Kliauga, de Gorter, and Just (2008) and de Gorter, Drabik, and Just (2010) argue that the United States and the European Union establish the world ethanol and biodiesel prices, respectively. We test these theories using a cointegration analysis and the Vector Error Correction (VEC) model. Weekly price series are analyzed for the major global biofuel producers (European Union, United States, and Brazil) for the period 2002 â 2010. Biofuel policies in both the United States and Brazil appear to play a role in determining the ethanol prices in other countries, thus only partially confirming the previous findings for the U.S. price leadership in the literature. For biodiesel, our results demonstrate that the EU tax exemption and mandate impact the world biodiesel price, thus confirming the European Unionâs price leadership.
    Keywords: biofuels, biofuel polices, price leadership, VEC, Agricultural and Food Policy, International Relations/Trade, C32, Q16, Q17, Q47,
    Date: 2011
  2. By: Wang, Chenguang
    Abstract: Abstract: Policies such as Biomass Crop Assistance Program (BCAP) which aim to assist farmers with biomass production may act as a double-edged sword. On one hand, they lure farmers to adopt biomass production in the short term. On the other hand, they canât be irresponsible for farmersâ abandonment of biomass production in the long run. The paper sharpens this idea in a principal-agent setting and argues that by offering a timely loyalty premium the agentsâ take-and-run behavior can be mitigated. Moreover, the model shows that effort and investment in human capital are increasing in loyalty premium when agents decide to continue providing biomass after testing-water contract expires.
    Keywords: BCAP, contract duration, incentives, Environmental Economics and Policy, Industrial Organization, Production Economics,
    Date: 2011
  3. By: Kauffman, Nathan; Hayes, Dermot
    Abstract: Agricultural biofuels require the use of scarce land, and this land has opportunity cost. We explore the objective function of a social planner who includes a land constraint in the optimization decision to minimize environmental cost. The results show that emissions should be measured on a per acre basis. Conventional agricultural life cycle assessments for biofuels report carbon emissions on a per gallon basis, thereby ignoring the implications of land scarcity and implicitly assuming an infinite supply of the inputs needed for production. Switchgrass and corn are then modeled as competing alternatives to show how the inclusion of a land constraint can influence life cycle rankings and alter policy conclusions.
    Keywords: biofuels, biomass, energy policy, land use, life cycle analysis, Agricultural and Food Policy, Environmental Economics and Policy, Q16, Q48, Q58,
    Date: 2011
  4. By: Du, Xiaodong; McPhail, Lihong
    Abstract: This study addresses the complex relationship between energy and agricultural marketsârepresented by corn, ethanol, and gasoline pricesâparticularly in light of the growth in biofuel production. Contemporaneous price response and transmission of market shocks are investigated in a simultaneous-equation system to disclose fundamental driving forces before and after the development of large-scale ethanol production. We use a dynamic conditional correlation multivariate GARCH model to demonstrate a strengthening relationship among corn, ethanol, and gasoline prices. We identify a structural change point at March 25, 2008 using the test by Bai and Perron (2003). The strengthened market relationship is further illustrated by variance decomposition based on a structural VAR model.
    Keywords: corn, ethanol, gasoline, structural break, Structural VAR, GARCH, Agricultural and Food Policy, Demand and Price Analysis, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, C32, Q11, Q4,
    Date: 2011
  5. By: Xiaodong Du; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: This report updates the findings in Du and Hayes 2009 by extending the data to December 2010 and concludes that over the sample period from January 2000 to December 2010, the growth in ethanol production reduced wholesale gasoline prices by $0.25 per gallon on average. The Midwest region experienced the biggest impact, with a $0.39/gallon reduction, while the East Coast had the smallest impact at $0.16/gallon. Based on the data of 2010 only, the marginal impacts on gasoline prices are found to be substantially higher given the much higher ethanol production and crude oil prices. The average effect increases to $0.89/gallon and the regional impact ranges from $0.58/gallon in the East Coast to $1.37/gallon in the Midwest. In addition, we report on a related analysis that asks what would happen to US gasoline prices if ethanol production came to an immediate halt. Under a very wide range of parameters, the estimated gasoline price increase would be of historic proportions, ranging from 41% to 92%.
    Keywords: crack ratio, crack spread, import elasticity.
    Date: 2011–04
  6. By: Drabik, Dusan; de Gorter, Harry; Just, David R.
    Abstract: We show how leakage differs, depending on the biofuel policy and market conditions. Carbon leakage is shown to have two components: a market leakage effect and an emissions savings effect. We also distinguish domestic and international leakage and show how omitting the former like the IPCC does can bias leakage estimates. International leakage is always positive, but domestic leakage can be negative. The magnitude of market leakage depends on the domestic and foreign gasoline supply and fuel demand elasticities, and on consumption and production shares of world oil markets for the country introducing the biofuel policy. Being a small country in world oil markets does not automatically imply that leakage is 100 percent or above that of a large country. We show leakage due to a tax credit is always greater than that of a mandate, while the combination of a mandate and subsidy generates greater leakage than a mandate alone. In general, one gallon of ethanol is found to replace only 0.35 gallons of gasoline â not one gallon as assumed by life-cycle accounting. For the United States, this translates into one (gasoline-equivalent) gallon of ethanol emitting 1.13 times more carbon than a gallon of gasoline if indirect land use change (iLUC) is not included in the estimated emissions savings effect and 1.43 times more when iLUC is included.
    Keywords: biofuels, market leakage, carbon leakage, emissions savings, domestic leakage, tax credit, mandate, Environmental Economics and Policy, Q27, Q41, Q42, Q54,
    Date: 2010
  7. By: Chen, Xiaoguang; Huang, Haixiao; Khanna, Madhu
    Abstract: This paper examines the extensive and intensive margin changes in land use in the U.S. likely to be induced by biofuel policies and the implications of these policies for GHG emissions over the 2007-2022 period. The policies considered here include the Renewable Fuel Standard (RFS) by itself as well as combined with current biofuel tax credits or a carbon price policy. We use a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to endogenously determine the effects of these policies on cropland allocation, food and fuel prices, and the mix of first and second-generation biofuels. We find that the increase in crop prices under the RFS is likely to be less than 20% in most cases and this increase is much smaller when the RFS is accompanied by volumetric subsidies or a carbon price policy since these policies induce a switch away from corn ethanol to cellulosic biofuels. The impact of the RFS on GHG emissions reduction in the U.S. is fairly modest in size but increases when the RFS is accompanied by volumetric subsidies or a carbon price policy. However, domestic savings in GHG emissions achieved by the RFS can be severely eroded by the indirect land use changes and the rebound effect on global gasoline consumption. The net reductions in global GHG emissions are largest when the RFS is accompanied by a carbon price policy.
    Keywords: Biofuel Mandates, Land Use, GHG Emissions, Technology, Environmental Economics and Policy, Land Economics/Use, Resource /Energy Economics and Policy,
    Date: 2011–05–01
  8. By: Strohm, Kathrin
    Abstract: Dieser Arbeitsbericht analysiert die Stoffströme des deutschen Biokraftstoffsektors für das Jahr 2007. Zahlreiche Statistiken wurden ausgewertet, um prozentuale Aussagen treffen zu können wie viel Rohstoffe in die Biokraftstoffproduktion und weitere energetische Verwendungen floss im Vergleich zu den Bereichen Ernährung und Futter. AuÃerdem wird aufgezeigt welche Nebenprodukte entstehen und falls möglich deren Mengen quantifiziert. Mittels Handelsstatistiken wurden die importierten Rohstoffmengen ermittelt. Wegen Lücken in der Datenverfügbarkeit wurden die gehandelten Biokraftstoffmengen nur als netto Importe (Verbrauch minus inländische Produktion) aufgezeigt, was zu Abweichungen im Hinblick auf die tatsächlich importierten und exportierten Biokraftstoffmengen führen kann. -------------------------------------------------------------------------- ------------------------------------------------------------- This working paper analyses the material flows in the German biofuel sector for the year 2007. Several statistics were evaluated to indicate which percentage of raw materials went into biofuel production and further energetic uses versus the sectors food and feed. Further the report mentions which by-products are generated and if possible these are quantified. By the use of trade statistics the quantities of imported raw materials were identified. Trade statistics for biofuels are hard to obtain; therefore only net imports of biofuels (consumption minus national production) were calculated which can lead to discrepancies regarding the actual imported and exported biofuel quantities.
    Keywords: Biokraftstoff, Biodiesel, Bioethanol, Rohstoffe, Verbrauch, Deutschland, 2007, biofuels, biodiesel, bioethanol, raw materials, consumption, Germany, Agribusiness, Crop Production/Industries, Resource /Energy Economics and Policy, Q16,
    Date: 2010–09
  9. By: Gustafson, Cole; Maung, Thein; Saxowsky, David; Nowatzki, John; Miljkovic, Tatjana
    Abstract: This study investigates the economics of supplying wheat straw and corn stover within 100 mile radius of a potential new biorefinery in southeast North Dakota. In particular, straw and stover total delivery costs, potential straw and stover supply sites and least cost transportation routes are identified using a linear programming transport model and a GIS (Geographic Information Systems) mapping system. We show that USDA/NRCS (Natural Resources Conservation Service) future crop residue removal rate policies will be important for determining whether it is economically viable to harvest crop residues as potential feedstock for energy generation. Increase in residue removal rates narrow the size of residue supply areas and consequently result in lowering total transportation costs. There is an economic tradeoff between residue collection density and distance from the biorefinery. Most wheat residues are highly concentrated in the north, some distance from the biorefinery. Relying solely on wheat straw for supply needs require longer transportation distances which increases total cost. Using a combination of wheat and corn residues lowers total transportation costs. Since most wheat/corn residues are densely concentrated in north/south, regional highways would likely be the routes used often to transport the residues, as compared to interstate highways. Increased traffic volumes due to the hauling of crop residues would require additional investment in improving road conditions.
    Keywords: Wheat Straw, Corn Stover, Density, Transportation Cost, GIS, Community/Rural/Urban Development, Crop Production/Industries,
    Date: 2011–07–24
  10. By: Abebe Damte (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: This study examines the relationship between property rights, defined by land tenure security, the strength of local-level institutions, and household demand for fuel wood, as measured by the source from which fuel wood is collected. A multinomial regression model is applied to survey data collected in rural Ethiopia. Results from the discrete choice model indicate that active local-level institutions reduce the dependency on community forests, but, otherwise, increase household dependency on open access forests. However, property rights do not increase demand for fuel wood collected from private forests. The results suggest that there is a need to bring more open access forests under the management of the community and increase the quality of community forestry management in order to realize improvements in forest conservation.
    Keywords: Property rights, institutions, fuel wood rural, Ethiopia
    Date: 2011–04
  11. By: Abebe Damte (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: The heavy dependence and inefficient utilization of biomass resources for energy have resulted in high depletion of the forest resources in Ethiopia, while the use of traditional cooking technology, one source of inefficient biomass resource use, has been linked to indoor air pollution and poor health. In response, the government and other institutions have pushed for the adoption of new cooking technologies. This research examines the speed of adoption of some of these technologies – Mirt and Lakech cook stoves – in urban Ethiopia. The duration analysis suggests that adoption rates have been increasing over time, that income and wealth are important contributors to adoption, and that substitute technologies tend to hinder adoption. However, it was not possible to consider prices or perceptions related to either the technologies or biomass availability in the duration models, and, therefore, further research is needed in order to further inform policy with respect to household technology adoption decisions.
    Keywords: Improved stoves, Duration, Adoption, Urban Ethiopia
    Date: 2011–04
  12. By: Georg Strüver; Tim Wegenast
    Abstract: According to conventional wisdom, strategic natural resources like oil are harmful to international peace. Nonetheless, there is little empirical quantitative work on the link between resource abundance and interstate conflicts. Analyzing the impact of oil on militarized interstate disputes on a monadic level of analysis, this paper shows that oil in fact influences the conflict potential between countries. Results of logistic regressions suggest that a high absolute oil production is associated with an increased risk of dispute initiation. Per capita oil production, in contrast, does not seem to influence a country’s propensity to start militarized conflicts. We also find that while very small oil-rich countries are more frequently the object of military actions, large oil producers seem to be generally spared from foreign attacks. We conclude that specific causal mechanisms such as an increased military capacity or the indulgence of the international community (rather than domestic political conditions inherent to the rentier state) might be particularly useful to explain our findings.
    Keywords: oil, militarized interstate disputes, international conflicts, natural resources
    Date: 2011–04
  13. By: Hammoudeh, S.M.; Liu, T.; Chang, C-L.; McAleer, M.J.
    Abstract: This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004-2011 period and the 2009-2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007-2008 Great Recession seems to have led to “localization†and less migration of credit and market risk in the oil-related sectors.
    Keywords: risk,;VIX;SMOVE;sectoral CDS;MOVE;adjustments
    Date: 2011–04–27
  14. By: Alfredo Marvão Pereira (Department of Economics, The College of William and Mary); Rui M. Pereira (Department of Economics, University of the Algarve)
    Abstract: This paper examines the economic and budgetary impacts of fuel prices using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. The fuel price scenarios are based on forecasts by the US Department of Energy (DOE-US) and the International Energy Agency (IEA-OECD) and represent a wide range of projections for absolute and relative fossil fuel prices. In terms of the long term economic impact, our results suggest a 1.9% drop in GDP in the DOE-US scenario and 1.6% in the IEA-OECD scenario. As to the budgetary impact, higher fuel prices lead to lower tax revenues, which, coupled with a reduction in public spending, translate into lower public deficits. Accordingly, increasing fuel prices create an important policy trade off in that they can contribute to reducing the public deficit while hindering economic growth. Finally, our results highlight the importance of public sector spending decisions and the mechanisms of endogenous growth in understanding the impact of fossil fuel prices. Indeed, a scenario of higher fuel prices would, with exogenous public decisions and exogenous economic growth assumptions, result in substantially smaller economic effects and yield adverse budgetary effects.
    Keywords: Fuel Prices, Economic Performance, Budgetary Consolidation, Dynamic General Equilibrium, Endogenous Growth, Portugal.
    JEL: C68 D58 H50 H60 O52 Q43
    Date: 2011–04–25
  15. By: Schneider, Stefan; Schneider, Stefan
    Abstract: Negative prices for electricity are a novelty in European power markets. At the German EEX spot market negative hourly prices have since occurred frequently, down to values as extreme as minus several hundred €/MWh. However, in some non-European markets as USA, Australia and Canada, negative prices are a characteristic for a longer period already. Negative prices are in fact natural for electricity spot trading: plant flexibility is limited and costly, thus, incurring a negative price for an hour can nevertheless be economically optimal overall. Negative prices pose a basic problem to stochastic price modelling: going from prices to log-prices is not possible. So far, this has been dealt with by “workarounds”. However, here a thorough approach is advocated, based on the area hyperbolic sine transformation. The transformation is applied to spot modelling of the German EEX, the ERCOT West Texas market and the exemplary valuation of an option. It is concluded that the area hyperbolic sine transform is well and naturally suited as a starting point for modelling negative power prices. It can be integrated in common stochastic price models without adding much complexity. Moreover, this transformation might be in general more appropriate for power prices than the log transformation, considering fundamentals of power price formation. Eventually, a thorough treatment of negative prices is indispensable since they significantly affect business.
    Keywords: energy spot price modeling; electricity spot markets; negative prices; EEX
    JEL: C51 C5 C46 G13
    Date: 2010–12
  16. By: Randy Chugh; Maureen L. Cropper; Urvashi Narain
    Abstract: To investigate how fuel economy is valued in the Indian car market, we compute the cost to Indian consumers of purchasing a more fuel-efficient vehicle and compare it to the benefit of lower fuel costs over the life of the vehicle. We use hedonic price functions for four market segments (petrol hatchbacks, diesel hatchbacks, petrol sedans, and diesel sedans) to compute 95 percent confidence intervals for the marginal cost to the consumer of an increase in fuel economy. We find that the associated present value of fuel savings falls within the 95 percent confidence interval for some specifications, in all market segments, for the years 2002 through 2006. Thus, we fail to consistently reject the hypothesis that consumers appropriately value fuel economy. When we reject the null hypothesis, the marginal cost of additional fuel economy exceeds the present value of fuel savings, suggesting that consumers may, in fact, be overvaluing fuel economy.
    JEL: L62 Q4
    Date: 2011–04
  17. By: Siqi Zheng; Jing Cao; Matthew E. Kahn
    Abstract: With the decline of the traditional hukou system, migrants in China have a broad set of cities to choose from. Within an open system of cities, compensating differentials theory predicts that local real estate prices will reflect the marginal valuation of non-market local public goods. More polluted cities will feature lower real estate prices. But, local pollution may be caused by booming local industries. To address such endogeneity concerns, we estimate hedonic regressions using an instrumental variable strategy based on “imports” of pollution from nearby sources. By documenting the importance of spatial emissions patterns, our study highlights how real estate prices in one city are affected by Pigouvian externalities originating in another location. On average, a 10% decrease in imported neighbor pollution is associated with a 1.8% increase in local home prices.
    JEL: Q53 R31
    Date: 2011–04
  18. By: Kim, Man-Keun; Yu, Tun-Hsiang
    Keywords: Environmental Kuznets Curve, Energy Use, Vector Autoregression, Historical Decomposition, Environmental Economics and Policy, International Relations/Trade, Resource /Energy Economics and Policy, Q43, Q52, Q56,
    Date: 2011
  19. By: Hoel, Michael (Dept. of Economics, University of Oslo)
    Abstract: Several recent articles have analyzed climate policy giving explicit attention to the nonrenewable character of carbon resources. In most of this literature the economy is treated as a single unit, which in the context of climate policy seems reasonable to interpret as the whole world. However, carbon taxes and other climate policies differ substantially across countries. With such heterogeneity, the effects on emission paths of changes in taxes, costs and subsidies may be very different from what one …finds for a hypothetical world of identical countries.
    Keywords: climate change; exhaustible resources; renewable energy; green paradox
    JEL: Q31 Q41 Q42 Q54 Q58
    Date: 2011–04–28
  20. By: Anna Creti; Pierre-Andre Jouvet; Valerie Mignon
    Abstract: The aim of this paper is to investigate the determinants of the carbon price during the two phases of the European Union Emission Trading Scheme (EU ETS). More specifically, relying on daily EU allowance futures contracts, we test whether the carbon price drivers identified for Phase I still hold for Phase II and evolve toward a long-run relationship. Using cointegration techniques and accounting for the 2006 structural break on the carbon market, we show that while a cointegrating relationship exists for both phases of the EU ETS, the nature of this equilibrium relationship is different across the two subperiods, with an increasing role of fundamentals in Phase II. Deriving equilibrium values, we show that the carbon price tends to be undervalued since the end of 2009.
    Keywords: EU ETS; carbon price; energy prices; cointegration
    JEL: Q4 C22
    Date: 2011–04
  21. By: Don Fullerton; Daniel Karney; Kathy Baylis
    Abstract: We build a simple analytical general equilibrium model and linearize it, to find a closed-from expression for the effect of a small change in carbon tax on leakage – the increase in emissions elsewhere. The model has two goods produced in two sectors or regions. Many identical consumers buy both goods using income from a fixed stock of capital that is mobile between sectors. An increase in one sector’s carbon tax raises the price of its output, so consumption shifts to the other good, causing positive carbon leakage. However, the taxed sector substitutes away from carbon into capital. It thus absorbs capital, which shrinks the other sector, causing negative leakage. This latter effect could swamp the former, reducing carbon emissions in both sectors.
    JEL: H2 H23 Q48 Q54
    Date: 2011–04
  22. By: Sheldon, Ian; McCorriston, Steve
    Abstract: In this paper, analysis is presented relating to the impact of border tax adjustments for climate policy on the international competitiveness of energy-intensive industries, and the related problem of carbon leakage. While many of the economic and legal issues are not particularly new, climate policy does present some possible twists to the analysis of border tax adjustments when vertically-related markets can be characterized as a successive oligopoly. Specifically, an appropriate border tax adjustment will depend on the incidence of a domestic carbon tax, the nature of competition in upstream and downstream sectors, as well as the basis for assessing the trade neutrality of any border tax adjustment. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, domestic firm competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in domestic competitiveness being maintained and global carbon emissions being reduced.
    Keywords: climate policy, carbon leakage, border tax adjustments, imperfect competition, Environmental Economics and Policy, International Relations/Trade, H87, Q38,
    Date: 2011
  23. By: Solenn Leplay; Sophie Thoyer
    Abstract: Safeguarding tropical rainforests is one of the most important challenges for the future, particularly to mitigate climate change. The international community has actively sought international policy solutions to curb deforestation in tropical countries. Debt-for-nature swaps and certification of sustainable forest management have been implemented by NGOs. Some states are currently negotiating the implementation of the REDD (Reduced Emissions from Deforestation and Degradation) mechanism, a North-South financial transfer to compensate countries for avoided deforestation. However, little is known about the efficiency of these instruments. We argue that they may have a double effect: an expected direct impact on deforestation linked to the conditionalities of instruments, and an indirect impact due to their feedback effects on macroeconomic variables, affecting in turn the drivers of deforestation. The second effect is often overlooked by policy makers [...].
    Date: 2011–01
  24. By: Francisco Rosas; Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: On average, U.S. farmers choose to apply nitrogen fertilizer at a rate that exceeds the ex post agronomically optimal rate. The technology underlying the yield response to nitrogen rewards producers who over apply in years when rainfall is excessive. The overapplication of nutrients has negative environmental consequences because the nitrogen that is not taken up by the plant will typically volatilize causing N2O emissions, or leach causing water pollution. We present a nonlinear offset program that induces farmers to reduce their nitrogen applications to the level that will be consumed by the plant in a typical year and, as a result, reduce N2O emissions from agriculture. The offset program is nonlinear because of the nonlinear relationship between N2O and nitrogen application rates. We assume that the farmer solves an expected utility maximization problem, choosing the optimal nitrogen application rate. The key contribution is a set of simulations that shows that modest offset payments will induce participation in the program and will have a significant impact on both expected and actual N2O emissions without having a significant impact on actual or expected yields. We also find that more risk-averse farmers will reduce emissions by a greater amount than less risk-averse farmers. Finally, we show the distribution of emission reductions induced by this nonlinear offset scheme.
    Keywords: carbon offsets, nitrogen fertilizer, nitrous oxide, pollution, uncertainty. JEL Codes: Q12, Q18, Q51, Q53, Q54, D8
    Date: 2011–04
  25. By: Key, Nigel; Sneeringer, Stacy E.
    Abstract: Methane digestersâbiogas recovery systems that use methane from manure to generate electricityâhave not been widely adopted in the United States because costs have exceeded benefi ts to operators. Burning methane in a digester reduces greenhouse gas emissions from manure management. A policy or program that pays producers for these emission reductionsâthrough a carbon offset market or directly with paymentsâcould increase the number of livestock producers who would profi t from adopting a methane digester. We developed an economic model that illustrates how dairy and hog operation size, location, and manure management methods, along with electricity and carbon prices, could influence methane digester profi ts. The model shows that a relatively moderate increase in the price of carbon could induce signifi cantly more dairy and hog operations, particularly large ones, to adopt a methane digester, thereby substantially lowering emissions of greenhouse gases.
    Keywords: methane, methane digesters, manure, livestock, climate change, greenhouse gases, carbon offset, Environmental Economics and Policy, Financial Economics, Livestock Production/Industries, Resource /Energy Economics and Policy,
    Date: 2011–02
  26. By: Ward, Patrick S.; Shively, Gerald E.
    Abstract: We examine the extent to which economic development reduces both a country's disaster risk and its social vulnerability to climate-related disasters. Global climate change is expected to increase the frequency and intensity of extreme weather events, such as droughts, floods, and various types of storms. Moreover, the effects of these extreme weather events are expected to be borne disproportionately in areas of the world already challenged by underdevelopment. We find that the ability of economic development to reduce disaster risk depends on a country's income level; additional income becomes less effective in reducing disaster risk as countries become wealthier. We find that, conditional on a disaster occurring, higher incomes generally reduce a country's social vulnerability to such disasters. We additionally find that underlying political structures have an important influence over the human costs of disasters, with outcomes more favorable in democratic societies.
    Keywords: Natural disasters, climate change, economic development, vulnerability, International Development, Political Economy, I3, Q5, O2,
    Date: 2011
  27. By: Pierre Courtois; Tarik Tazdaït
    Abstract: Assuming that a North-South transfer is the key to climate cooperation, we ask when and how much the North should o¤er to the South in return for a commitment to reduce deforestation and forest degradation. In light of the risk of irreversible damage over time, we examine a negotiation with a deadline. We assess the conditions for an agreement to be immediate or delayed, and discuss situations likely to result in negotiation failure. Despite the risk of irreversible damage over time, we show that cooperation is likely to be delayed and characterize situations where North and South fail to agree within the deadline. Although Pareto-improving, cooperation may collapse because of inefficiencies related to incomplete information. We show that in negotiations with a deadline, uncertainty about the benefi…ts deriving from cooperation and the irreversibility of the damage that will be caused if cooperation is delayed, are the two key components affecting choice.
    Date: 2011–03

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